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U.S. wants trade to dominate economic talks with Japan: source

TOKYO (Reuters) - The United States is pushing for trade to be a key issue in top-level economic talks with Japan, a person involved in the talks told Reuters on Thursday, an unwelcome development for Tokyo, which is seeking to fend off U.S. pressure to reduce the bilateral trade imbalance.

A TV monitor showing U.S. President Donald Trump is seen through national flags of the U.S. and Japan at a foreign exchange trading company in Tokyo, Japan February 1, 2017. Picture taken February 1, 2017. REUTERS/Kim Kyung-Hoon

Japan wants to keep the bilateral dialogue, to be led by Vice President Mike Pence and Deputy Prime Minister Taro Aso and starting next Tuesday, focused on economic policy, energy, infrastructure investment and the rules of trade.

But Washington said last week it wanted to talk about bilateral trade issues, including farm products, at the economic dialogue, the source said. Japan rejected the idea but said it could accept such talks outside of the dialogue, he said.

U.S. Commerce Secretary Wilbur Ross will also visit Tokyo next week and the Japanese embassy spokesman in Washington said Ross would hold separate talks with his Japanese counterpart, Trade Minister Hiroshige Seko.

U.S. President Donald Trump has said he favors bilateral free trade agreements over multilateral frameworks, and has vowed to take action to narrow the country’s big trade deficits with nations like China, Germany and Japan.

Japan wants to avoid kicking off bilateral FTA talks for fear of being pressured into opening up highly protected areas like agriculture.

Japanese embassy spokesman Tamaki Tsukada told reporters in Washington the Trump administration had yet to officially propose pursuing an FTA with Japan and that Tokyo would welcome any clarification by Pence of U.S. intentions.

However, he stressed that the Tokyo talks would be “a first step” in developing a partnership with the new U.S. administration.

Tsukada said it was possible there would be discussion of the bankruptcy of Toshiba Corp’s U.S. unit Westinghouse Electric Co in the Ross-Seko meeting.

A U.S. official told Reuters this month the Trump administration and Japan were in discussions to ensure that the bankruptcy does not lead to U.S. technology secrets and infrastructure falling into Chinese hands.

Japanese government officials say that should Japan come under fire for its trade gap, it is prepared to argue that its share of the U.S. trade deficit is much smaller than in the 1980s and 1990s, when it was harshly criticized by Washington.

Tsukada said the Japanese side would stress the contribution to the U.S. economy and jobs of Japanese investment in the United States.

Tokyo has been wary of Trump’s complaints that Japan and other countries block market access to U.S. companies and artificially weaken their currencies to boost exports.

Japanese officials said thorny trade issues could eventually be discussed in the dialogue, but that next week’s first round of talks would be mostly spent agreeing on a broad list of agendas.

“We need to agree on a viable agenda for the dialogue and to some extent, a reasonable time frame for follow-up. That is the starting point of dialogue. Tangible results should come later,” said one government source, at the same time acknowledging that Trump could be in more of a hurry for tangible results.

Another Japanese government official said rising geo-political tensions over North Korea may mean Washington will avoid being too confrontational with Japan on trade.

“With the situation over North Korea unstable, it’s not a good idea for any Japan-U.S. tensions (on trade) to surface,” said the official. “For the United States, defense is probably a higher priority than trade now.”

The embassy spokesman, Tsukada, said North Korea was likely to be discussed during a working lunch between Pence and Japanese Prime Minister Shinzo Abe.

Additional reporting by Tokyo policy team, Writing by William Mallard and Leika Kihara; Editing by James Dalgleish and Dan Grebler